With the Securities Financing Transactions Regulation (SFTR) for the buyside now live, reconciliation issues linger from July’s implementation date.
“People have been getting generally very good matching rates on the primary matching for SFTR, but there’s lots of work to move on in terms of actually reconciling all the other fields, getting the matching better on that and then we’ve got further phases where more fields will be reconciled between the parties – so there’s still an awful lot of work left for the industry to do as a whole,” says Martin Walker, head of product management and collateral management, Broadridge.
SFTR went live for investment funds, insurance companies and pension funds on October 12, three months after central counterparties and central securities depositories began reporting.
“Everywhere you could possibly have a problem, it’s come out somewhere for somebody,” says Walker, adding that acceptance rates have been generally positive.
Sellside reporting has been successful on the whole, with trade repository (TR) acceptance rates reaching 83 percent across all report types according to IHS Markit figures. But both the buy and sellside continue to face data reconciliation challenges.
“Acceptance rates are just the first step … beyond that, the data needs to be reconciled because there are two parties for every transaction,” says Walker.
“As you move from beyond just getting it correctly reported, there’s the actual really hard work of actually reconciling it with your counterparty and that’s just for the first phase of reconciliation.”
Unique trade identifier (UTI) matching has challenged the securities industry for years.
“Having had some minor involvement in the European Market Infrastructure Regulation (Emir) reporting, it was a big surprise when I started getting involved in SFTR to hear exactly the same conversations going on about UTI matching,” says Walker.
According to Simon John Davies, business development manager, Pirum, many larger sellside firms will want to generate the UTI for their transactions, meaning buyside counterparts need an effective mechanism to ingest and manage the trade.
Buyside firms also face specific issues not experienced by the sellside, he said in an email.
“For example, where they are using or relying on delegated reporting services offered by their agent lenders and repo brokers – the need to have oversight of this and controls need to be factored in. There will also be sellside counterparts that do not offer delegated reporting, either through choice or because they are out of scope, so the ability to be able to report needs to be considered versus the use of delegated reporting,” he said.
“Additionally, they will generally not be able to delegate the reuse calculation/reporting, as this will operate across their whole business, rather than be done at the counterpart level.”
He also added that many buyside firms lack the resources to implement and manage such a complex reporting regime.
The improvement of data quality and reconciliation between counterparties will become more imperative as the regulation develops. January 2021 will see non-financial counterparties commence reporting.
“There will be additional fields that will need to be reconciled, so that whole process around reconciliation, improving data quality, making booking of trades more consistent between different counterparties, which is necessary for you to match. There’s still a lot of work to do done,” says Walker.